Founder Issues

The following is a list of the post titles by author under this topic. Scroll further down this page to find the actual blog post by your selected author. Author’s posts appear in reverse alphabetical order. For example, following this list, Fred Wilson’s posts appear towards the beginning of the blog page, and Boston Millennia Partners’ post appears towards the end of the blog page.

BOSTON MILLENNIA PARTNERS (1 post)

Boston Millennia Partners: Early Stage Investing is Far from an Exact Science

JEFFREY BUSSGANG (2 posts)

Jeffrey Bussgang: How to Select a Venture Capitalist

Jeffrey Bussgang: Be Wary of Term Sheet Tactics

DAVID COHEN (1 post)

David Cohen: Many Successful People are Deliberate about Randomness

RON CONWAY (1 post)

Ron Conway: What Ron Conway Looks For in a Deal

CHRIS DIXON (8 posts)

Chris Dixon: How Much Seed Money to Raise

Chris Dixon: Think of Dilution over the Company’s Life & How Much to Raise

Chris Dixon: Product/Market Fit: The Only Thing that Matters for a Startup

Chris Dixon: Problems Taking Seed Money from Big VCs

Chris Dixon: Nothing More Dilutive & Morale-Crushing than a Down Round

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“So don’t hide your failures. Wear them as a badge of honor. And most of all, learn from them.” Fred Wilson, Learn from Your Failures, Pg 159-160 from book Do More Faster - TechStars lessons to accelerate your startup by David Cohen & Brad Feld

“[] If you [] sold [your company] for $100 million and you and your co-founders are gonna make a bunch of money [] you really ought to make sure that every single person who was involved in making that success happen makes a bunch of money too.”

“[] nobody will get more diluted than [the co-founders] because [the co-founders] are there at the very beginning and the dilution will happen over time. And the person or the investor who shows up at the very end of the process might never get diluted. The person who was there at the very beginning gets diluted the most.”

“[] The sooner you can stop talking about equity in percentages and start talking about it in dollars is the sooner that you are going to own more of your company than you would otherwise.” Fred Wilson April 19, 2012 MBA Mondays Live: Employee Equity - Archive and Feedback- video;

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Once the user base supports a long-term sustainable business (stage 2), the final “building the business” stage begins, i.e., building a management team including leaders for engineering, product, customer support, finance, marketing, sales, business development and HR (human resources).

“Founders should think of the business as [the ultimate product being built] because from the company can come [additional products and initiatives]. The company, if built correctly [with strong founder commitment], will be more important than any single product it can create”.

Wilson recommends that the founder /CEO have “a partner to help [] build the company” like a senior, experienced HR leader or “a strong number two, a President or COO.”

“[The] people side of the business is harder and way more complicated than building a product is. [Culture], values and a commitment to creating a fantastic workplace [must] come from the top [and are everything]. [] [If] there is a meaningful culture that the entire team buys into, the team will stick together [and surmount challenges].

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[] Chemistry among the Board members [] is critical to a well-functioning Board [] [just as it is among team members.] [] Chemistry [] must be strong [] [with mutual respect and reliance] on each other's strengths to [make] right decisions.” Investing in chemistry should be for the long term including participating in activities outside the Board room.

“Unless [a] Director has a contractual [Board seat or a unique skill], [Wilson recommends removing that director who doesn't fit in and] replace[d] [] with someone with similar skills who will in fit better.

[][A] company needs a strong Board and [the CEO] must do everything [to ensure getting one including getting input from other entrepreneurs and CEOs to improve the Board]. [] [If certain directors can’t be replaced, Wilson advises adding independent directors] to balance them out [] [to] build chemistry between the independents and the investors.” Changing 1 or 2 directors can change chemistry.

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Wilson discusses company control. “In theory, [company control] rests with the ownership split between the founder and the investors and how the Board [] is set up. If the founder/entrepreneur owns more than 50% of the company and controls more than half of the board seats, then he or she has “control” []. But in reality [Wilson has] found things are very different than that. And it all comes down to two things: 1) How well the Company is performing; 2) Whether the Company needs more investment capital and where it’s coming from.

[] An entrepreneur or hired CEO can own as little as 5-10% [] but [have control]” if the company is performing well with substantial cash flow and no need for additional capital.

“An entrepreneur can control 95% [] and all [board seats] but [] easily lose control” if the company is struggling, needs more cash and only existing investors would consider putting up cash.

[] A [key question] is “when is a Board big enough to need committees?” [for these responsibilities]. A three person Board should not have committees. [] A five person Board could have committees and should [if there’s much audit and compensation work]. A [seven+ person Board] should [] have committees.”

The 3 most common committees are: audit, providing CFO function oversight and related issues; compensation, providing oversight creating and managing compensation plans, especially for the CEO and senior management. Its goals are “to attract and retain the best talent [possible yet insure compensation isn’t so generous it results in a loss of shareholder value to management and employees]”; and governance, which oversees Board composition and other “self-governing” matters.

“[Wilson likes] three person Board committees with one chair and 2 other[s], [believing it most efficient]. [] Strong, well led [engaged] committees [] make for better Boards” because they handle necessary logistical work. That frees the Board to offer substantive strategic guidance “where Boards can add the most value”. Fred Wilson The Board Of Directors: Board Committees, Apr 9, 2012;

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“The Board of Directors is the [company’s governing body]. All major decisions [require Board ratification, including approval to sell, hire or fire a CEO, make major acquisitions and do major financings, including an IPO].” All strategically significant issues need Board involvement and support.

“[][The] Board should not run a company [][but ensure] the right team is at the helm []. [Boards] must always act in the best interests of the company and its major stakeholders: [] employees,[] customers, []shareholders, [] debtholders, [etc.] [] The company works for the market [] and the Board and the management team work for the company.”

Often, as director a right answer isn’t straightforward. “There are no formulas [][nor “right answer”]. Only time will tell if the right decision was made [which can be debatable].”

A good board is engaged, debates openly and honestly and tries reaching consensus. The Chairman should drive the Board.

CEOs shouldn’t manage the Board. “A great Board manages itself, [] treats the CEO as a peer, [and considers the CEO's opinion,][but isn’t] a rubber stamp. [It] pushes the CEO and the company to make the most of [presented opportunities and asks necessary hard questions].

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“Every company should have a Board of Directors. [] [Benefits] include [] advice, counsel, relationships, experience, and accountability.

[Shareholders] elect the [Board] [] [usually via] a nominating entity that puts directors up for election by the shareholders. []

[Wilson likes] a three person Board early on in a company's life [including the founder with two others he trusts and respects].

[] [Investors sometimes negotiate a Board seat - less common for angels, moreso for VC’s].”

A founder can still control a three or five person Board. “As a company moves from founder control to investor control, [an independent director is considered]. [] [Wilson likes] independent directors []. The more independent minded the Board [], [usually the better].

[][Wilson argues] that an investor controlled Board is the worst possible situation” since an investor’s interest is narrowly his financial return, not a broader company perspective. “[Investor directors should not control the board.] The founder should control the board in a company he [] controls and independent directors should control a board where the founder does not control the company.

[] [Boards should evolve, recruit new members regularly and have term limits]”, preferably 4 years.

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“The Board Chair runs the Board of Directors [and] is a Board member with the same [] responsibilities as the other Board members. [He also ensures the Board functions:] [meeting regularly], [getting the CEO what he needs from the Board],[ensuring all members contribute], [and giving the CEO a single contact on various issues]. []

Small boards (three or less) don't really need Board Chairs. [] At [seven +], [Wilson] believe[s] it is critical to have a Board Chair.”

Although common, Wilson doesn’t believe the founder/CEO should also be Chair. “[] [Wilson] think[s] the Chair should be an independent director who [helps] the CEO manage the Board.

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“One [] contentious [] negotiation [point] between an entrepreneur and a VC [], particularly [in] an early stage financing, is the inclusion of an option pool in the pre-money valuation. [] [The] fact [is an option pool] is simply about price. [Example]: [] $3.25mm pre-money with no option pool [can be equivalent to] $4mm pre-money with one. [] What an entrepreneur needs to do is find out what the market price for [his] company is with and without an option pool in the number. [Then], the negotiation over this point is [] less contentious.”

“[] [Wilson acknowledges that if] options are counted in the pre-money, entrepreneurs will want commensurately higher valuations to compensate for the additional dilution.”

“[][The] option pool request needs to be reasonable and based on [a] budget. [Wilson looks for] enough options [in] the "pre-money pool" to fund the hiring and retention needs [] until the next financing.” Wilson wants an option pool in the pre-money when he invests. Fred Wilson, Valuation and Option Pool and comments, Nov. 6, 2009; http://www.avc.com/a_vc/2009/11/valuation-and-option-pool.html#comment-22043449

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Wilson discusses sustainability within the context of “[] short term profit maximization vs. long term business health []. If you want to stay in business forever, you have to focus on the long term [] [with] a business model that [ensures customer trust to keep them returning].

[][Wilson believe[s] business is about making a profit that sustains the business and enriches the owners but is not maximized in any period (month, quarter, year). [] [The] goal of a business is sustainability so that all the stakeholders (customers, employees, owners, suppliers, etc.) can rely on [it][] long term.”

When considering investments, entrepreneurs should employ survival instincts to ensure future survival. “[][When considering whether] to disrupt their own business [] the [] choice is [not short term profit maximization but] [] survivability” even if it likely results in lower future profits.

“[] When you construct your business model and create the [business culture], emphasize sustainability over profit maximization in everything you create and do. [] Profits are the essence of survivability. [] But just because you need to make a profit doesn't mean you need to maximize it. Balancing the need for a profit with [] sustain[ing] the business is the art of what [the business leader must do to win.]” Fred Wilson, How To Be In Business Forever: A Lesson In Sustainability, Oct. 1, 2012; http://www.avc.com/a_vc/2012/10/how-to-be-in-business-forever-a-lesson-in-sustainability.html

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[Some] founders [] suggest building the business first (even if it takes longer) and then seeking investment later after it's proven successful and has a strong growth trajectory. [] Examples [][are] StackExchange and DuckDuckGo.” Wilson responds that “[] that's a great model if you can do it.” Fred Wilson Burn Rates: How Much? Comments section, Dec 12, 2011 ; http://www.avc.com/a_vc/2011/12/burn-rates-how-much.html

[Wilson has] two basic rules of thumb [for the amount to raise in early stages, i.e., seed, Series A and B rounds]. First try to dilute in the 10-20% band whenever you raise money.” 10% is preferable. More may be necessary, “[] but try [] to keep [] dilution below 20% each round. If you do two or three rounds [exceeding] 20% each round, you’ll end up with too little [equity].

Second, raise 12-18 months of cash each time you raise money. Less than a year is too little. [] Longer than 18 months means you may [have cash when the company had at a lower valuation].

[] When [a] company gets above 100 employees and valued at north of $50mm, things change. You may need [] more cash [] for working capital [] and [the company] may not be increasing value [as rapidly as] when [it was] smaller.” A raise of 24+ months cash may then be appropriate. Fred Wilson, How Much Money To Raise, Jul 3 2011; http://www.avc.com/a_vc/2011/07/how-much-money-to-raise.html

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[Wilson’s] strong bias on [optimal headcount] [] is that less is more. [Repeatedly] [he’s] seen the entrepreneur who wants to hire quickly fail and [] the entrepreneur [who’s] [] slow to hire succeed.”

In his experience with software-based consumer internet businesses, “[] [success] might be most highly correlated with a slow hiring ramp [] [during a company’s early years.] Being resource constrained can be [good] when [] getting started. It forces [] [a] focus on what's working and get[ting] to the rest of the vision later on. []” His advice: “[] hire slowly and wisely instead of quickly.” Fred Wilson MBA Mondays: Optimal Headcount At Various Stages, Jun 4 2012; http://www.avc.com/a_vc/2012/06/mba-mondays-optimal-headcount-at-various-stages.html

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Wilson believes the concept of sustainability needs greater consideration today in business as “[] the focus on performance and efficiency often comes at the cost of sustainability.

[] sustainability is all about figuring out how to be in business forever. It is about [:] [win/win] business models that [] lead to happy long term customer and supplier relationships [;] [] avoiding the temptation to overreach [] [and] maximize near term profits at the expense of long term health [;] [] adapting [] to changing market dynamics [;] [] building a team and a culture that can survive the loss of the leader and keep going[;] [and] [] many more things like this.” Fred Wilson, Sustainability, Nov. 21, 2011 http://www.avc.com/a_vc/2011/11/sustainability.html

Andy Weissman venture capitalist and Partner Union Square Ventures

“These things often times look like overnight successes but they never are. About a year ago I was at a conference and Dennis Crowley the founder of Foursquare was at the conference and Foursquare at the time was maybe two years old. And someone [] [asked] Dennis [] how does it feel to be [] an overnight success [] [with] millions of users []. And Dennis said actually [he’s] been working on it for 15 years, and 13 of those were failures before [he] got to the last 2 years, so it hasn’t been an overnight success.” Andy Weissman , #startupstories: Failure @ .10 min into video, Published on Sep 10, 2012 ; NewYorkTech Meetup #Startup stories , http://nytm.org/resources/startupstories;

David Tisch angel investor, Managing Partner The Box Group and Co-Founder TechStars NYC

“You are constantly failing as a startup. It’s how quickly you rebound from that failure that might lead to success.” David Tisch, #startupstories: Failure @ 1.3 min into video, Published on Sep 10, 2012 ; NewYorkTech Meetup #Startup stories , http://nytm.org/resources/startupstories;